Small Business Lending is Back

NEW YORK (MainStreet)  Small businesses may be finally getting the credit they deserve. More than half of business credit applications were approved in the first half of 2013 -- and nearly two thirds of those approved received all the credit they were seeking. The Federal Reserve Bank of New York's semi-annual small business credit survey also reports that profitable firms that applied for more than $100,000 were among the most successful applicants.

Still, the credit market is challenging for small companies seeking funding of $100,000 or less. The survey measures the credit experiences of small businesses in New York, New Jersey, Connecticut and Pennsylvania.

"Survey results indicate a good credit market for experienced and profitable firms and a generally positive business outlook for the first half of 2014," the New York Fed said in a statement. "More than half of respondents expected revenues to increase and 30% expected to add employees, compared to 19% that reported adding employees in 2013."

However, both profitable and unprofitable companies complained of high credit search costs and a time consuming process. On average, firms reported spending 26 hours searching and applying for credit, contacting three financial institutions and submitting three credit applications.

A majority of the small business applicants reported needing small amounts of capital totaling $100,000 or less. Companies applying for $100,000 or less had a 46% approval rate versus a 60% approval rate for firms seeking more than $100,000 in financing.

The survey also found that managing uneven cash flows was the top business concern, ranking above access to capital for the first time since 2010, when the survey began. Most of the companies were looking for the borrowed capital to boost cash flow in an effort to manage day-to-day operational expenses. The debt was most often secured by personal real estate collateral.

Fully 60% of the applicants already carried debt, most holding $100,000 or less. Profitable firms were not only more successful in applying for credit but were also more likely to experience positive interest rate changes on their existing debt.